The American customer has been resilient in 2023. Jeff Greenberg / Getty

• Investors should not be so down on corporate earnings as 1st-quarter outcomes handily beat estimates, BofA mentioned.
• BofA raised its 2023 S&ampP 500 EPS forecast by eight% and introduced a new 2024 forecast that suggests 9% development.
• But there are two looming dangers that could eventually rattle the economy and the stock marketplace.

Initially-quarter earnings outcomes are in, and they are a lot improved than Wall Street analysts anticipated.

Bank of America’s Ohsung Kwon mentioned in a Thursday note that corporate America’s capability to swiftly adapt to a volatile macro atmosphere suggests investors should not be so damaging on the economy provided that earnings outcomes beat estimates by five% as businesses commence to concentrate on productivity and efficiency gains.

“A robust 1st-quarter when once again showed corporate America’s capability to preserve margins,” Kwon mentioned, highlighting the reality that inflation pressures are easing while pricing power remains on solid footing.

The bank upgraded its S&ampP 500 2023 earnings per share estimate to $215 from $200 due to the 1st-quarter earnings strength, representing an boost of eight%. Furthermore, Kwon introduced the bank’s 2024 S&ampP 500 EPS estimate at $235, which would represent annual development of 9%.

“Earnings normally recover stronger than they fall and we count on 2024 to be a improved profit atmosphere right after companies’ concentrate on efficiency and productivity,” Kwon mentioned, adding that a weaker US dollar could also enable enhance profit development subsequent year.

Bank of America

Further upside drivers to corporate income, the economy, and the stock marketplace consist of a new capital expenditure cycle that leads to massive investments from businesses, with an estimated $600 billion in mega projects getting announced given that January 2021, according to the note.

Although the capital expenditure boom is getting driven by reshoring efforts, in which businesses bring some or all of their production and sourcing capabilities back into America, some is also getting driven by more than $550 billion in fiscal stimulus that stems from the bipartisan infrastructure bill. 

These things pale in comparison to the key element that helped enhance corporate income more than the previous decade: economic engineering in the type of stock buybacks.

“We count on productivity-led earnings development ahead, rather than financially engineered development from the final decade,” Kwon mentioned.

But there are nonetheless two massive, lengthy-term dangers that could negatively influence the economy and stock marketplace, according to Kwon.

These dangers are the increasing trend of de-globalization and refinancing dangers due to greater interest prices.

“We are coming out of the very best 20-year period for earnings development, which started with China joining the WTO in 2001. De-globalization is a massive secular danger, which drove most of the margin improvement more than the previous 20 years,” Kwon explained.

And though about 75% of corporate America’s present debt burden is fixed at historically low interest prices, greater interest prices could nonetheless be a headwind for specific sectors, like True Estate and Industrials, if the Federal Reserve does not reduce prices in the foreseeable future.

And current FOMC minutes from the Fed recommend a lot demands to occur for interest prices to be reduce anytime quickly.

Bank of America

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